Summary

Where it had been established that a director of a company had failed to discharge his duties by ensuring that the company collected and retained sufficient of the proceeds of its sales to discharge its VAT liabilities, and that certain others had knowingly assisted the director's breach of duties, judgment was entered against them.

Facts

The claimant company (F) issued proceedings against the defendants alleging that the first defendant director (M) had breached his fiduciary and good faith duties to F and that the second to fourth defendants had all dishonestly assisted M. F had been wound up on the application of Customs claiming that F owed a substantial amount of VAT and had been involved in carousel fraud. At the time of liquidation, M had been F's only director. The second defendant (H) had been F's trading partner in the United Kingdom. The third defendant (S) was H's principal director. F had imported huge consignments of mobile telephones, which it sold to H. F would invoice H for the price plus VAT, but H did not receive payment from its own customers for the slightly higher purchase price that it charged them plus VAT, nor did it discharge its liabilities to F in respect of the price and VAT. F had issued third party payment instructions to H to pay most of the proceeds plus output VAT to or in favour of foreign entities. H passed those instructions on to its own customers. F alleged that arrangements whereby H and its customers had been able to set off as input tax the VAT charged on their acquisition of the consignment against their liability to account to Customs for VAT due on the re-sale of the phones, amounted to a fraudulent scheme that was designed to render it insolvent and unable to discharge its VAT liabilities and to profit H and others.

Held

(1) M had failed to discharge his duty to act in F's best interests by ensuring that it collected and retained sufficient of the proceeds of its sales to discharge its VAT liabilities. (2) No reasonably intelligent and honest person engaged in a business such as S's would not have known that he was involved in a fraudulent and dishonest scheme. S knew perfectly well that he was and therefore his mental state was dishonest and through him H had dishonestly assisted M's breaches of duty to F, Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd (2005) UKPC 37 , (2006) 1 WLR 1476 applied.

Judgment for claimant.